Get ready for 48 hours of economic fury

[thenews]

Get ready for 48 hours — and a little more — of the most intense outpouring of information on the U.S. economy you’re likely to ever see.

The schedule between Wednesday and Friday includes second-quarter GDP, a Federal Reserve decision, July payrolls, the July Institute for Supply Management manufacturing report and July car sales.

Yes, we mean “includes,” because there are eight other scheduled releases as well.

So if you’re going to focus on just one number...

“It’s got to be the unemployment rate,” said Joel Naroff, president of Naroff Economic Advisers in Philadelphia. He says there’s a slight chance that the unemployment rate could fall below 6% — “which means, by the end of this year, we’ll be sitting on top of full employment.” The unemployment rate, at 6.1% in June, has fallen from a peak of 10% after the recession.

Full employment refers to the lowest rate at which unemployment can go without sparking inflation. The latest projections from the Fed show central bank officials believe that is between 5.2% and 5.5%.

An economy at full employment could cause wage growth to accelerate — and possibly, inflation. That makes the unemployment rate the number to focus on. “It’s even more important than jobs growth, unless you get 300,000 or more or 200,000 or less,” Naroff says.

Lena Komileva, chief economist of G+ Economics in London, said the market has been underestimating just how quickly labor-market slack has been taken away. But the lack of wage growth implies the Fed has some time before it will need to increase interest rates.

The first reading of gross domestic product growth for the second quarter will be less important for the headline than for the underlying components, Naroff says. In any case, the Commerce Department is revising GDP data from the last three years — so that 2.9% nosedive in the first quarter could be changed yet again.

Komileva says the first-half growth figures won’t be representative of the true pace of growth in the economy. “What we have seen from earnings and payrolls is that the underlying pace is still healthy to progress with tapering,” she said.

The Fed does have important decisions to make, but they’re not likely to come at the meeting that ends Wednesday. The Fed’s asset-purchase program is due to end in the autumn. Interest rate hikes aren’t likely until next year.

Federal Reserve Chairwoman Janet Yellen may use her speech at Jackson Hole, Wyo., at the end of August to talk about another important point, when the central bank will stop reinvesting proceeds from maturing securities.

“It gives a forum to be more academic and [for Yellen to explain how] to better understand the Fed’s thinking,” Naroff says. Yellen could address whether shrinking the $4 trillion-plus balance sheet implies the Fed is moving toward restrictive policy.

The ISM data, due Friday, also needs to be considered. “If you’re focused on the labor market, you have to make some sort of assumption about underlying conditions, and gives us insight to the extent the economy is accelerating,” Naroff says.

“If those numbers do fall off a cliff, it ultimately will show back up in the labor market. If they stay at solid levels, there’s no reason to expect anything but further tightening.”

Komileva agrees. She says the Fed needs to start making noises soon if they expect to raise rates in the middle of next year.

“The first-tier indicators will go a long way in assessing how confident officials might feel to begin that communications process of targeting expectations for the beginning of the rate liftoff.”

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